Today marks the tenth anniversary of President Clinton’s signing of the Commodity Futures Modernization Act (CFMA). At passage, the bill was said to establish “legal certainty” for derivatives. In other words, the bill assured bankers that they wouldn’t face any legal consequences in the United States when they manipulated, defrauded, and colluded their way to billions in profits using financial derivatives that no one understood.
The CFMA led to serious consequences for the rest of us, including the exacerbation of the housing bubble and the subsequent bank bailouts and foreclosure crisis; the California electricity crisis; periodic food and energy price spikes that have hit consumer pocketbooks hard; and, of course, the continued reign of an unaccountable shadow banking sector over the economy.
Continue reading Celebrating Ten Years of Derivatives Deregulation
The front page of the New York Times says it all this morning: “The treasury secretary told a House panel that failure to provide A.I.G. with the $85 billion bailout would have been “catastrophic” for the economy.” Both Paulson and Geithner also defended their actions with the old warning about the imminence of a “second Great Depression.”
As I noted yesterday, Geithner is also telling us that a failed Bernanke confirmation effort would have catastrophic consequences for financial markets. Geithner and other Wall Street policy elites are old hands at this: they’ve used the same rationale for every massive financial bailout of the past generation, from the Mexican bailout to Long Term Capital Management to AIG.
Notably, they’ve used the same excuse to argue against financial regulation. When Brooksley Born wanted to regulate derivatives, Summers, Rubin, and Greenspan told her that she was going to cause a financial crisis. Of course, the opposite was true: they didn’t regulate derivatives, and it caused a massive financial crisis.
Continue reading Geithner’s Big Lie
Ben Bernanke’s supporters are warning that a Senate vote against the Fed chair will send financial markets tumbling. Tim Geithner recently chimed in by telling Politico that markets would find a no vote “very troubling,” before saying that he was confident Bernanke would be reconfirmed.
Geithner’s chief mentor, Robert Rubin, deployed the very same argument about Enron. Rubin, then a top executive at Citigroup, made an 11th hour call to the Treasury Department as part of a campaign by Enron and its creditors to stave off a looming ratings downgrade. The call was later criticized as an improper use of the former Treasury Secretary’s influence, but Rubin defended his actions, saying that he thought an Enron collapse would imperil world energy markets.
The financial apocalypse trick has been turned many times by Wall Street’s policy elites, but the Rubin example is especially apt today: the high-level campaign to avert Enron’s ratings downgrade in 2001 appears to have been coordinated by the same Federal Reserve official lobbying for Ben Bernanke’s reappointment.
Continue reading Fending off the Bernanke downgrade
The same lobbyist that sold Washington on Enron is now touting Ben Bernanke. According to Politico, former Enron lobbyist Linda Robertson has been managing Bernanke’s confirmation effort on behalf of the Federal Reserve — coaching him through the process in much the same way she coached Ken Lay and Jeff Skilling through the Washington influence game.
Robertson played a key role in some of Enron’s most scandalous moments in the year prior to its collapse. For starters, she was at the center of negotiations involving the highly secretive energy task force headed by Vice President Dick Cheney. A review of Enron email shows that Robertson guided Lay through pivotal meetings with Cheney and other officials, and actually authored the Enron memo and talking points that were later integrated into Cheney’s controversial energy plan.
Continue reading Bernanke lobbyist authored Enron/Cheney energy plan
Following on Saturday’s weather balloon detailing the Wall Street pay of Larry Summers, today the Times ran a piece on Summers’s work at the hedge fund DE Shaw. Replete with color from inside sources and spare in its critical content, the article is a striking example of journalistic capture; after discussing Summers’ ludicrous compensation ($5.2 million for a year in which he worked one day a week), the piece follows the lead of its sources in functioning to allay concerns about potential conflicts of interest that Summers faces as the chief architect of Obama’s economic policies.
Ironically, given Summers’ infamous remarks on women and science, the article was written by Louise Story, the same journalist who once “reported” that more women with Ivy League degrees were choosing to become stay-at-home moms. Jack Shafer of Slate immediately called that one out as a “bogus trend story,” pointing to its reliance on nebulous “weasel words,” and the piece subsequently became a favorite punching bag of media critics.
Continue reading Story gets it wrong on Summers